Unit and apartment building approvals for September shot up a seasonally adjusted 31.8% compared to August, easily surpassing the 1.5% for houses. For the 12 months up to September, private sector houses were up 7.7% and units were up 31.9%. According to the Australian Bureau of Statistics (ABS), total dwelling building approvals continued its uptrend for the 21st month in a row, with an increase of 2.5% in September.
With lower interest rates and a recovering economy, the housing industry is gaining traction. Investors need to keep track of companies involved in the different stages of housing development — land development, building materials, unit and house construction — to get a feel for which is faring the best. Here is a breakdown of some of companies involved.
Land development, house and multi-dwelling construction
Stockland (ASX: SGP) recently announced the sale of its 11.6% stake in FKP Property Group (ASX: FKP) for $100 million. The move was seen as a plus since the investment was not performing well. In its 2013 report, the developer's revenues were down by about $300 million, taking earnings down 26.9% for the year. The share price is around $4 with a price-earnings (PE) ratio of 17.
Australand Holdings (ASX: ALZ) released its third-quarter 2013 activities update, reaffirming previous guidance of 3-4% growth in operating earnings. Residential sales were strong with a large number of pre-sales contracts for apartments that will be completed from late 2014 to 2016.
In its 2013 half-year report, its net profit after tax (NPAT) rose 18% from $68.27 million to $80.7 million. Its share price just set a new yearly high at $3.81 last week, and its PE is 26.
Building Materials
CSR (ASX: CSR) has been on a steady climb up in share price, up 108% from $1.20 in July 2012 to its current price of $2.50. Over the next two years, analysts' forecasts have earnings per share almost tripling, which explains the high 37 PE.
Boral (ASX: BLD) announced a joint venture with the US building materials company USG this month, which will see the company receiving $601.8 million in the deal to equalise the equity between the two companies. The company stated that it doesn't expect a strong recovery in house construction domestically in 2014, but the US housing market recovery will bring in more revenue there.
Its share price is at $4.94, just at the top of the trading range it has been since October 2008. The 33 PE ratio reflects the market's expectation of increased earnings over the next two years.
Foolish takeaway
Wise investors will be looking over these and other housing-related companies to see which will have the greatest return. Some have not still fully recovered from the GFC, yet others are already on the move.
Being a cyclical industry, they will all go through a general up and down cycle, but you want to look for the ones that did the best during the last downturn as that shows strength and staying power. Watching the industry takes patience, so it's best to be conservative in growth and earnings expectations, and keep up to date on housing statistics so you get a feel for when the industry is kicking into a higher gear.
